Money Management  |  SEP 2002

Exits: The Forgotten Component by Roy M. Sidewitz

Exits: The Forgotten Component by Roy M. Sidewitz In many ways, a consistently successful exit strategy is more difficult to implement than an entry strategy. Often, entry points are so emphasized that exits, which may be even more critical to overall trading success than entries, are sometimes overlooked. This is because when you are contemplating an exit, you are already in the trade; the emotions of fear and greed make getting out of it more difficult. A missed entry is just one missed opportunity out of many, but a missed exit could easily result in a dramatically diminished trading account. Your exit strategy really has the toughest job. Every day, it has to make the critical decision: stay in or get out. WHAT SHOULD EXIT STRATEGIES DO? An ideal exit strategy should exercise strict control over losses while allowing profitable trades to blossom. It should control your risk by quickly exiting from losing trades, but allow winners to mature. It will turn a losing system into a profitable one and can make a profitable system even more so: Your exit strategy will determine whether your system is a winner.

by Roy M. Sidewitz, Ph.D